Do-little G20 summit cheers spared bankers

PARIS Mon Jun 28, 2010 7:46pm EDT

1 of 31. U.S. President Barack Obama gestures as world leaders gather for a group photo at the G20 Summit in Toronto June 27, 2010. Pictured are: South Korean President Lee Myung-bak, Canadian Prime Minister Stephen Harper, Obama, Saudi King Abdullah, French President Nicolas Sarkozy (front row, L-R), Spanish Prime Minister Jose Luis Rodriguez Zapatero, Prime Minister Jan Peter Balkenende of the Netherlands, South African President Jacob Zuma, Russia President Dmitry Medvedev, Ethiopian Prime Minister Meles Zenawi and Turkish Prime Minister Tayyip Erdogan (back row, L-R).

Credit: Reuters/Jim Young

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PARIS (Reuters) - Bankers voiced relief on Monday after world leaders abandoned a global bank levy and eased the timetable for new capital requirements at a G20 summit in Canada which posed questions about the forum's effectiveness.

Shares climbed in Europe and Asia, led by banks, after the U.S. Congress adopted a landmark financial regulation package on Friday, removing uncertainty, and the G20 dropped a 2012 deadline for more stringent risk-provisioning rules.

"We welcome the fact that the G20 has stepped away from imposing an arbitrary timeline for the implementation of new measures and has instead agreed to phase-in requirements agreements as and when national economic conditions allow," the International Banking Federation said in a statement.

Leaders of the main developed and emerging economies papered over differences on the right balance between reviving economic growth and cutting budget deficits at weekend talks in Toronto, in what was seen as a setback for U.S. President Barack Obama.

Unable to muster the unity of the past three crisis-era G20 summits, the leaders fell back on the "Sinatra doctrine," leaving each country to do it "my way," move at its own pace and adopt "differentiated and tailored" policies.

European leaders got what they saw as a green light to pursue austerity measures they consider essential to restore market confidence in the euro dented by the Greek fiscal crisis and wider concerns about high European sovereign debt.

"To be honest, it was more than I expected," German Chancellor Angela Merkel said of the G20's non-binding pledge to halve budget deficits by 2013 and balance budgets from 2016.

The United States had pressed the Europeans before the meeting to avoid withdrawing economic stimulus measures prematurely and urged countries with current account surpluses such as Germany to boost domestic demand.

"The positive outcome is that the European consolidation programs, which are moderate and appropriate given the confidence crisis in Europe, have been endorsed and accepted by others at the G20 level," Michael Heise, chief economist of Europe's biggest insurer Allianz, told Reuters.

The world's central bankers called on Monday for early and resolute steps to cut deficits, warning that global recovery could be derailed by surging interest rates unless industrial economies take determined action to reduce debt.

"High and rising levels of public debt imply significant risks for the global economy," the Basel-based Bank for International Settlements said in a report.

FRANCE NEXT

France is likely to be the next European state to announce deficit-cutting steps this week, with the cabinet due to approve measures on Wednesday to curb public spending, and further cuts to be spelled out in September in a tough 2011 budget.

"We have an untouchable goal to reduce the deficit level by two points from 8 percent to 6 percent next year. That's never been done before," Budget Minister Francois Baroin told France 2 television, adding the 2011 budget would be "the most difficult in more than 30 years."

Meanwhile, several banking sources in Frankfurt said the European Union is preparing to stress-test more than 100 of the biggest EU banks in July, representing some 50 percent of each member state's banking balance sheet.

EU finance ministers are due to decide next week how many banks will be tested for their risk resilience, and on what criteria. EU leaders have agreed the results will be made public in an effort to restore market confidence.

In a sign markets are still nervous about euro zone debt, the premium investors charge to hold French, Belgian, Spanish and Italian bonds rather than benchmark German bunds rose to the highest levels since early June. The interest rates at which banks lend to each other in euros also rose.

The European Central Bank said it bought another 4 billion euros in euro zone government bonds last week, the lowest weekly sum to date, taking the total to 55 billion since it intervened on May 10 to halt contagion from Greece's debt crisis.

The Toronto summit exposed issues that are harder to resolve when countries loosely united in the G20 are emerging from the downturn at different speeds and with divergent priorities.

China avoided a scolding over the weak yuan, which has fueled its export boom, by announcing a more flexible foreign exchange regime a week before the summit and letting its currency rise by 0.5 percent against the dollar. But Beijing also refused to let the G20 praise it for the shift, insisting the issue had no place in international forums.

On trade liberalization, the G20 arguably moved backwards, dropping 2010 as the target date for concluding the long-stalled Doha round of World Trade Organization negotiations.

Opposition from Canada, Japan, Brazil and Australia, whose banks did not need state bailouts during the crisis, thwarted European calls for a common tax on banks to shield taxpayers from the costs of rescuing the financial sector.

On financial regulation, leaders endorsed a long phase-in for new Basel III bank capital and liquidity rules, allowing different speeds for different countries at the risk of encouraging regulatory arbitrage.

"The outcome makes it more difficult to guarantee stability on financial markets if all the countries go their own direction, because you get the possibility of regulatory arbitrage in markets," Heise of Allianz said.

(Additional reporting by Arno Schuetze and Jonathan Gould in Frankfurt, Huw Jones, Steven Slater and Emilie Sithole-Matarise in London and Elizabeth Pineau in Paris; writing by Paul Taylor, editing by Sonya Hepinstall)

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Comments (21)
STORYBURNcool wrote:
The US needs to go through the same Austerity programs Europe is going through. All the while pulling a rabbit out of the hat and boosting job growth

Jun 27, 2010 8:53pm EDT  --  Report as abuse
nodeception wrote:
Obama is the worst example for austerity as possible. He’s single handedly bankrupting the U.S. and knows NOTHING about economics. Spending and borrowing are all he knows. Which is just the opposite of what’s required. If Al Qaeda were trying to destroy our economy they couldn’t do a better job than Obama’s doing right now. As such anything he recommends should be disregarded as dangerous and disastrous.

Jun 27, 2010 9:31pm EDT  --  Report as abuse
Obama is all talk and i bet $1 trillion that QE2 and more Federal Reserve currency manipulation via printing is just around the corner. Add to that, the Federal reserve will continue interest rate manipulation via buying (monetizing)USA debt. It makes perfect sense why gold is over $1200/oz, even though Bernanke lied to congress during questioning saying he did not know why gold was doing so well. So if Obama and Bernanke are lying, you can count on more of the same from Washington DC. Smart people are short dollars and long gold.

Jun 27, 2010 11:20pm EDT  --  Report as abuse
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